Even if there are reports of some correction happening in the real estate market in India, foreign institutional investors (FIIs) have full faith in India's growth story. They have lined up investments of up to $20 billion in the Indian real estate funds for the next three years.

After the easing FDI investment norms in 2005, FIIs were keen to put their money in the fast growing Indian realty sector.Jones Lang Lasalle Meghraj, a research firm that tracks real estate in India, has estimated that up to 150 real estate funds were in various stages of operation in India last year. In a report, the firm estimates that 50 % of these funds are in active category.

The growing interest in the Indian real estate is attributed to the change in perception of the sector from ‘quicksand' to ‘emerging sector'. Improved performance of the listed realty stocks made it more attractive. Allowing FDI in the sector has led to the entry of multinational developers such as IJM, Ascendas, Hines, CapitaLand and Keppel Land to name a few.Booming IT and ITES sectors as well as the state governments' emphasis on infrastructure development also changed the perception.

An interesting fact revelled in this report is that real estate funds are not just restricted to the metros when it comes to sourcing opportunities. There are established transactions in tier-II and III cities such as Bhavnagar, Jalandhar and Dehradun.With an overall positive sentiment about economy, majority of these funds (64 per cent), expected the Indian realty sector to remain stable.However, funds still prefer investing in Mumbai, Chennai, Bangalore, Delhi NCR and Hyderabad followed by tier II cities such as Pune, Ahmedabad, Chandigarh, and Kochi...

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Even before the globally-popular real estate mutual funds (REMF) take off here, RBI has raised a red flag. It has argued that the funds would lead to circumvention of foreign direct investment (FDI) in real estate that places restrictions on foreign investors. Although 100% FDI is allowed in realty projects on the automatic route, the conditions have to be adhered to. The banking regulator has said it amounted to indirect flow of FDI in violation of the spirit of the conditions laid down by the government. RBI now wants the government to take up the issue with market regulator Sebi which had issued the guidelines on REMFs about two months ago. As per the Sebi guidelines, REMFs can directly invest in real estate, in mortgage-backed securities, securities of companies engaged in dealing in real estate assets or in undertaking real estate development projects and other securities. However, it has mandated that at least 35% of net assets of the scheme should be invested directly in realty assets. The much-awaited scheme has not found takers but some fund houses are working on the scheme. RBI’s concerns about flow of foreign investment in realty are not new. It had earlier written to the government to make Foreign Investment Promotion Board’s clearance mandatory for FDI into the sector.For more view- realtydigest.blogspot.com